High Country, Inc., produces and sells many recreational products. The company h

Question

High Country, Inc., produces and sells many recreational products. The company has just opened a new plant to produce a folding camp cot that will be marketed throughout the United States. The following cost and revenue data relate to May, the first month of the plant's operation: Beginning inventory Units produced Units sold Selling price per unit Selling and administrative expenses: 47,000 42,000 $81 Variable per unit Fixed per month Manufacturing costs: S4 561,000 Direct materials cost per unit Direct labor cost per unit Variable manufacturing overhead cost per unit Foxed manufacturing overhead cost per month $15 $8 $2 $893,000 Management is anxious to see how profitable the new camp cot will be and has asked that an income statement be prepared for May. Required: 1. Assume that the company uses absorption costing. a. Determine the unit product cost b. Prepare an income statement for May High Country, Inc.

Explanation / Answer

1(a)

Unit Cost as per absorption costing:

* Under absorption costing fixed manufacturing overhead are also inculded for calculating unit product cost. But in variable costing these cost are excluded.

1(b)

Income Statement under absorption costing

2(a)

Unit Cost as per Variable costing

2(b)

Income Statement under absorption costing

Units Produced                  47,000 Direct Material                    15.00 Direct Labour                      8.00 Variable Mfg Overhead                      2.00 Fixed Mfg. Overhead*                    19.00 [893,000/47000 units] Cost per unit                    44.00

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